Some interesting comments from some of the hard hit Westside drought farmers in this Mother Jones article (No I don't normally read Mother Jones, the link was sent to me). Jim Dietrich has a multi-million dollar water-sipping irrigation system, but no water to put in it.
On a recent afternoon, he climbed into his Dodge Laramie with his golden retriever, Joey, and drove through his fallowed fields. He passed a jumble of blue pipes, part of his $20 million drip irrigation system, which uses a third of the water of his old furrow system. "We paid more for that drip system than we paid for the goddamn ground," he grumbled. It didn't seem fair that he'd been cut off from his carefully allotted supply while nearby farmers with grandfathered water claims were still flooding their fields. "We're trying to be the most efficient as we can, and now we get no water."
I agree that this is ridiculously inefficient, but it is less the fault of "wacko environmentalists," than the lack of well-functioning water markets and higher prices for water. With higher prices and markets, those who have not invested in efficient irrigation will sell water to those who have made the investment. The flood irrigation next door stops, and Dietrich's system is using the same water efficiently. See David Zetland's Aguanomics blog for many posts on this concept that explain it far better than I.
The Mother Jones article goes on to describe ideas for allocating water to the most efficient through some elaborate process of grading farm's efficiency that is social engineering at its worst. Amazingly, it makes no mention of how markets allocate resources to the most efficient users without all the people and politics involved in rating and choosing the most deserving. It even fails to mention markets as an option, even as it compares it to cap-and-trade (market) programs for greenhouse gas emissions. That reminds me why I don't read Mother Jones regularly.